I'm a thirty-year veteran of Wall Street and an outspoken critic of ineffective regulation and an advocate for economic and political sanity. Following a career as an in-house lawyer and industry regulator, I am now in private practice representing member firms, registered persons, Whistleblowers, and defrauded investors. I publish the RRBDlaw.com and the BrokeAndBroker.com websites.

Feds Nab Corporate Bid Rigger In Tax Lien Auctions

Readers of “Street Sweeper” are familiar with our coverage of bid rigging of tax liens auctions. On September 26, 2012, another defendant bit the federal criminal dust when Crusader Servicing Corp. Jenkintown, PA, pleaded guilty to participating in a conspiracy to rig bids for the sale of tax liens auctioned by municipalities throughout New Jersey. Crusader faces a maximum penalty under the Sherman Act of a $100 million corporate criminal fine, which may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either alternative is greater than $100 million.

According to federal prosecutors, starting as early as 1998 until September 2006, Crusader conspired to suppress and restrain competition in order to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates.

SIDE BAR: When an owner fails to pay real property taxes, an involved municipality often pursues legal measures to attach a tax lien. Following the expiration of a statutory period, unpaid tax liens are typically sold at public auction where interested bidders seek to acquire the lien at a favorable interest rate that the delinquent homeowner will pay upon redemption. In New Jersey, bids start at 18% interest with the expectation that the public, competitive bidding will reduce that rate. If the acquired lien remains unpaid after a statutory period, the purchaser generally initiates foreclosure.

In contravention of a public, competitive auction, Crusader conspired to rig the tax lien bidding by allocating certain liens to members of the conspiracy, thus ensuring that the prevailing bidder took the lien with an artificially higher interest rate than would likely have been derived from open competitive bidding. As a result, property owners’ tax debt likely accrued with higher interest rates.

The Department of Justice asserts that Crusader’s plea is the tenth to have arisen from an ongoing investigation into bid rigging or fraud related to municipal tax lien auctions. Eight individuals—Isadore H. May, Richard J. Pisciotta, Jr., William A. Collins, Robert W. Stein, David M. Farber, Robert E. Rothman, Stephen E. Hruby, and David Butler—and one company, DSBD LLC, have previously pleaded guilty as part of this investigation.

“The conspirators agreed to not compete with one another at these tax lien auctions, depriving struggling homeowners of a competitive interest rate,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “Today’s guilty plea demonstrates the Antitrust Division’s continuing efforts to prosecute those who manipulate the competitive process in order to harm home and property owners.”

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